I recently reached a point where I found myself once again looking for a good mortgage calculator. It’s not the most exciting thing to be doing online and yet working out how to pay off such a massive loan is certainly the most important next to getting healthy.
Things being what they are in this ongoing pandemic you might wonder why anyone would want to move house and change their mortgage. The fact is that, as recently pointed out on Radio 4, some people have no choice. Moving home is a necessity for some due to circumstances beyond their control.
Besides, when interest rates are as low as they are now changing your mortgage might be a very good idea in the long run. Not only that, negotiating a mortgage repayment holiday with your lender could be a huge weight off your shoulders if you’re going through the mill financially due to the impact of lockdown on your work or business.
For many though, the idea of rearranging a mortgage or taking out their first loan is a daunting prospect. The fear of the unknown kicks in and it’s put off or avoided altogether. This is a shame because there’s plenty of help available. There’s so much that this assistance in itself can add to your bewilderment if you’ve borrowed so much money before, so stick to a few sites and concentrate on what they have to offer in terms of advice.
I remember when the site Money Saving Expert was first launched in 2003. If only I had taken out shares in it! It has since grown to such a size and it provides so much support that it long ago became a multi-million pound business in its own right. It has a comprehensive section devoted to mortgages and home buying guides. Everything is explained in plain English with no bias or vested interest in any of the products mentioned.
The mortgage section on the Citizens Advice website is also packed with advice although it tends to assume you’ve come to them because you’re in difficulty so most of what first appears are sections explaining what you can do if you get into arrears or if you’re threatened with court action by your lender. Let’s hope you never have to make use of that particular advice.
Most sites that offer advice on mortgages will include a mortgage calculator of some sort. These vary in their ease of use and some are better designed than others. The each perform the same calculations but some of the sites they are placed upon are cluttered with advertising and other distractions.
Online Mortgage Calculator
Take for example MortgageCalculator.uk. This one has a clear and uncluttered interface that does the job without anything getting in the way. All you need to fill in is the amount you want to borrow, what the interest rate is going to be or is now, and the length of the term in months.
For example, £200,000 at 3.86% over 30 years. Put that in and click the button and it reveals that you’ll pay £938.76 each month for 30 years to pay off the loan in full (Repayment Mortgage), or £643.33 each month for 30 years if you pay the interest only, which means of course that at the end of those 30 years you’ll still owe the lender £200,000, which is of course an Interest Only mortgage.
The pros and cons of each are that with the repayment method the house is yours at the end of the term but at higher monthly cost to you, whereas with interest only your monthly outgoings are much less but at the end of the term you’ll have to pay the loan off in full or sell the house and downsize. That may not be such a bad idea if by then your children have left home and you don’t need such a large house, and the house will presumably have gone up in value anyway, which means you’ll have more equity left for your next purchase. On the other hand, if in those 30 years you’ve built and sold a business or your great aunt dies leaving you a healthy inheritance you might have £200k in the bank, in which case you can pay off the loan and keep the family home.
The MortgageCalculator.uk results also show the resulting loan and interest in a graphical format, and a month by month chart that shows how much of your repayments are made up of the interest and the capital. As you repay your loan the interest upon it lessens proportionally, so as time goes on your monthly payment (assuming it remains the same amount) pays off more of the capital. So in the last few years of the 30 year term your monthly payment is paying off mostly capital on the loan and very little interest.
Below the site’s mortgage calculator results are many sections that describe the terms used and in which you’ll find plenty of advice that clearly explains all this terminology.
If only they taught this sort of thing in schools to teenagers. There ought to be classes for 15-16 year olds in financial management, budgeting etc that includes mortgages and pensions. We keep being told that there’s going to be a pension shortfall due to an ever increasing ageing population and yet we don’t educate teenagers and young adults in how to provide for themselves. I wish someone had sat me down and explained all this. There’s no guarantee I would have acted on the advice given but I think every young person needs to have the financial talk. They should at least walk them through how to use a mortgage calculator.
Anyway, we’ve come to the end of my short piece on mortgages. As always, make sure you get financial advice from reputable organisations and individuals. Don’t just trust what your friends and family tell you, however well meaning they may be.
Independent Financial Advice
One final note on getting advice. Unbiased.co.uk is another site that’s worth a visit. It provides a database of over 27,000 IFAs (Independent Financial Advisors).
When you go to see an IFA they should give you an introductory, no-obligation chat in which they will help you review all your finances. They’ll be able to advise you on what you can afford to borrow and how you can best save for your pension. They earn their money in the form of commission generated when they sell a financial product, which is fair enough. There are some good ones out there so shop around.